CHAPTER 9 FIN 340 questions correctly
answered
Principle of Indemnity - correct answer ✔✔The insurer agrees to pay no more than the actual amount of
the loss.
Purpose of Principle of Indemnity - correct answer ✔✔To prevent the insured from profiting from a loss
and to reduce moral hazard.
Actual Cash Value (ACV) - correct answer ✔✔In property insurance, indemnification is based on the
actual cash value (ACV) of the property at the time of loss.
Methods to determine ACV - correct answer ✔✔1. Replacement cost less depreciation 2. Fair market
value is the price a willing buyer would pay a willing seller in a free market 3. Broad evidence rule means
that the determination of ACV should include all relevant factors an expert would use to determine the
value of the property.
Exceptions to the Principle of Indemnity - correct answer ✔✔1. A valued policy pays the face amount of
insurance if a total loss occurs 2. Some states have a valued policy law that requires payment of the face
amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law
3. Replacement cost insurance means there is no deduction for depreciation in determining the amount
paid for a loss 4. A life insurance contract is a valued policy that pays a stated sum to the beneficiary
upon the insured's death.
Principle of Insurable Interest - correct answer ✔✔The insured must be in a position to lose financially if
a covered loss occurs.
Purposes of Insurable Interest - correct answer ✔✔To prevent gambling, to reduce moral hazard, and to
measure the amount of the insured's loss.
Support for Insurable Interest - correct answer ✔✔Can be supported by ownership of property, potential
legal liability, serving as a secured creditor, and contractual rights.
answered
Principle of Indemnity - correct answer ✔✔The insurer agrees to pay no more than the actual amount of
the loss.
Purpose of Principle of Indemnity - correct answer ✔✔To prevent the insured from profiting from a loss
and to reduce moral hazard.
Actual Cash Value (ACV) - correct answer ✔✔In property insurance, indemnification is based on the
actual cash value (ACV) of the property at the time of loss.
Methods to determine ACV - correct answer ✔✔1. Replacement cost less depreciation 2. Fair market
value is the price a willing buyer would pay a willing seller in a free market 3. Broad evidence rule means
that the determination of ACV should include all relevant factors an expert would use to determine the
value of the property.
Exceptions to the Principle of Indemnity - correct answer ✔✔1. A valued policy pays the face amount of
insurance if a total loss occurs 2. Some states have a valued policy law that requires payment of the face
amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law
3. Replacement cost insurance means there is no deduction for depreciation in determining the amount
paid for a loss 4. A life insurance contract is a valued policy that pays a stated sum to the beneficiary
upon the insured's death.
Principle of Insurable Interest - correct answer ✔✔The insured must be in a position to lose financially if
a covered loss occurs.
Purposes of Insurable Interest - correct answer ✔✔To prevent gambling, to reduce moral hazard, and to
measure the amount of the insured's loss.
Support for Insurable Interest - correct answer ✔✔Can be supported by ownership of property, potential
legal liability, serving as a secured creditor, and contractual rights.
